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Macro Update: Slowdown but domestic resilience in Russia

Macro Update: Slowdown but domestic resilience in Russia

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Published by SEB Group

SEB’s economists stick to their forecast from November and expect Russia’s GDP to grow by 3.4 per cent in 2013 and 4.0 per cent in 2014. Russia is less export dependent than many other eastern European economies, but is clearly affected by slow-growing Western Europe. Weak export is a sign of this but continued high oil prices continue to provide export revenue. At the same time the domestic economy shows resilience despite high inflation hitting household real income.

SEB’s economists stick to their forecast from November and expect Russia’s GDP to grow by 3.4 per cent in 2013 and 4.0 per cent in 2014. Russia is less export dependent than many other eastern European economies, but is clearly affected by slow-growing Western Europe. Weak export is a sign of this but continued high oil prices continue to provide export revenue. At the same time the domestic economy shows resilience despite high inflation hitting household real income.

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Published by: SEB Group on Jan 15, 2013
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09/17/2013

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Russia: Slowdown but domestic resilience
MONDAY
15 JANUARY 2013
 
Russia is less export dependent than many other eastern European economies, but isclearly affected by slow-growing Western Europe. Weak export is a sign of this butcontinued high oil prices continue to provide export revenue. At the same time thedomestic economy shows resilience despite high inflation hitting household real income.
 
Forward looking indicators
such as PMI
have weakened overall
, down in Decemberto 52.2, and the development with external weakness/domestic resilience is expected tocontinue in 2013. PMI for the more export oriented manufacturing industry dropped to50.0 in December while the figure for services increased marginally to 55.7.
 
We expect the oil price to stay at a level that provides good export- and governmentrevenue. This creates room for fiscal policy and strengthens exports and other parts ofthe economy such as capital spending and consumption. Our forecast is that
oil priceswill average USD 107.5 per barrel in 2013 and USD 110.0 in 2014
.
 
We stick to our forecast from
Nordic Outlook 
November and expect
GDP to grow by 3.42013 and 4.0 2014.
High oil dependence poses a risk both in the short- and long term. Ifoil price would drop it would put a significant pressure on the economy.
Daniel Bergvall
 Economic Research+46 8 763 85 94
Key data
Percentage change
2011 2012 2013 2014
GDP 4.3 3.5 3.4 4.0Unemployment
*
7.5 6.6 6.0 6.1Inflation 8.5 5.1 6.0 4.5Government fiscal balance** 1.6 0.5 -0.5 -0.5
*% of labour force, **% of GDPSource: Federal State Statistics Service, SEB
 
 2
 
Economic Insights
SLOW EXPORT GROWTH, DOMESTIC DEMAND RESILIENT BUT HIGH INFLATION HURTS REAL INCOME
 
In annual terms GDP-growth slowed down during 2012; from 4.9% in the first quarter to 2.9% in the third.Seasonally adjusted and compared to the previous quarter, growth was more even during the year with the thirdbeing the strongest.
 
Forward looking indicators are in line with diverging hard data showing a
weak external and industrialproduction performance at the same time as services are more resilient
. The composite purchasing managers’index (PMI) fell in the two last months 2012 from 53.7 in October to 52.2 in December; the outlook is a bit weakerbut still above 50. PMI for services on the one hand stayed just above 55 for the third month in a row at the sametime as PMI for manufacturing industry dropped for the second month in a row to 50.0.
 
Monthly data on i
ndustrial production is on a sideways, slightly weakening, trend
. Exports fell by 4% innominal prices in October 2012 and were according to national accounts roughly unchanged during the first 3quarters 2012 compared to the same period 2011.
 
Also
capital spending is increasing at a slower pace
, but data available for 2012 still shows a healthy increase. Inthe third quarter 2012 gross capital formation according to the National Accounts increased by 9.3% y/y, down froma 22.9% increase the same quarter 2011. PMI for new orders dropped in December 2012 to the lowest level sinceOctober 2010 in combination with a weak international outlook point at a continued slowdown in investments.There are factors pointing at investments continuing to increase though. Bank lending is increasing but at a slowerpace, especially in foreign currency. In Roubles the increase was still more than 25% on an annual basis in October2012. Low investment and a low investment ratio for a number of years and official policy to promote increasedinvestments will support the development going ahead. High capacity utilisation also supports investments ahead.
 
Consumer confidence dropped during 2012 as inflation increased, eroding real wages and household purchasingpower. Last months have seen an improvement though and retail sales have been growing at a steady 4-4.5% y/ythe last months of 2012. Lower inflation in the second half of 2013 will boost real income and support an increase inconsumption expenditure, but we expect lower wage increases and fiscal stimulus in the years ahead compared toprevious years.

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